Following a consultation in January 2018, ESMA has decided to use its product intervention powers under MiFIR to address these investor protection risks. It has agreed the following measures:
- To prohibit the marketing, distribution and sale of binary options to retail clients (effective 2 July 2018 for three months).
- To restrict the marketing, distribution or sale of CfDs to retail clients, including rolling spot forex and financial spread bets (effective 1 August 2018 for three months).
The restrictions applied to CfDs are:
- leverage limits on the opening of a position between 30:1 and 2:1, depending on the price volatility of the underlying asset;
- a 50% margin close out rule applied on a per account basis;
- negative balance protection, limiting retail clients’ liability to the funds in their CFD trading account;
- a prohibition on firms offering monetary and non-monetary benefits (excluding research and information tools) to retail investors; and
- a standardised risk warning, including firm-specific figures on the percentage of client accounts that have lost money trading CFDs.
The measures have now been published in the Official Journal in the form of ESMA Decisions. ESMA will review the measures and consider whether they should be extended before the end of the 3 month period.